Yesterday, the Supreme Court agreed to hear the appeal of the declaratory judgment plaintiff in Medtronic Inc. v. Boston Scientific Corp. The question presented in the case is as follows:
In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is “not required … to break or terminate its … license agreement before seeking a declaratory judgment in federal court that the underlying patent is … not infringed.”
The question presented is whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.
Federal Circuit Decision
Medtronic licensed patented technology related to cardiac resynchronization therapy (CST) from Mirowski Family Ventures (MFV). Nearly from the start of the relationship, the parties disagreed as to which products were covered by the patents and whether the patents were valid. In 2003, Medtronic challenged the validity of a licensed patent while paying royalties into an escrow account. The parties ultimately settled the case. The settlement agreement indicated that MFV would inform Medtronic as to which products were covered by the patents. If Medtronic disagreed, it could retain the license while bringing a declaratory judgment action to have the court decide the issue.
In late 2007, Medtronic filed just such a declaratory judgment action of non-infringement and invalidity of the patents. Because it continued in the license agreement, MFV could not counterclaim for infringement. The parties disputed whether the burden to prove infringement rested on MFV, as is typically the case for the patent owner, or if, given the stature of the case, Medtronic bore the burden to prove non-infringement. The district court sided with Medtronic and found the MFV did not meet its burden of proving infringement of the Medtronic products.
On appeal, the Federal Circuit recognized that the case is not the typical patent infringement situation where the patent owner files the initial complaint, nor is it the typical declaratory judgment case where the patent owner files the compulsory infringement counterclaim. In those situations, the patent owner quite clearly bears the burden of proving infringement.
Now that the Supreme Court has indicated that counterclaims can be filed in the absence of ceasing royalty payments, patent owners cannot always file infringement counterclaims in the face of a declaratory judgment action. Does the patent owner still bear the burden of proving infringement or has it shifted to the declaratory judgment plaintiff?
The Federal Circuit reversed the district court and allocated the burden of proof to the declaratory judgment plaintiff. The court clearly struggled with how to handle the burden in light of MedImmune. The court ultimately reasoned that MedImmune would become not simply a shield to keep licensees from large damage awards from non-payment of the license, but also a sword to haul the patent owner into court where the patent owner must prove infringement. It is the licensee and not the patent owner who seeks relief from the court and a change in the status quo. If neither party presented evidence, the court should not upset the status quo of the license agreement. Thus, fairness requires them to bear the burden of proof.
The Supreme Court has now agreed to resolve this dilemma of its own making during its October 2013 term.